UK Shares Gain As Fed Keeps Stimulus Hopes Alive

Reuters Image

* FTSE 100 up 0.2 percent

* Ashmore rallies on Goldman upgrade

* Fresnillo rises after production update

* Real Estate firms fall on Barclays downgrade

Britain's top share index edged higher on Wednesday, recouping part of the previous session's losses after overnight testimony from the head of the Federal Reserve kept hopes of further U.S. monetary stimulus alive.

The UK blue chip index was up 8.89 points, or 0.15 percent, at 5,636.56 by 0808 GMT, having closed 0.6 percent lower in the previous session. Traders said they expected the index to remain technically rangebound in the near term.

Fed Chairman Ben Bernanke will deliver further testimony to the U.S. Congress on Wednesday, having echoed previous statements in his comments on Tuesday, leaving the door open to a third round of monetary stimulus.

"QE3 is almost certainly coming at some point during the second half of this year, but the short-lived impact of the Fed's prior stimulus efforts should remind investors not to get too excited by the prospect," Ian Williams, strategist at Peel Hunt, said.

Caution was evident as defensives Vodafone, liked for its dividend, and pharmaceuticals stock GlaxoSmithKline were the top risers on the FTSE 100.

Stimulus hopes should provide a floor to any downside for beaten-down cyclical stocks such as the banks, up 0.2 percent, traders said.

The sector is trading on a below par 12-month forward price-to-earnings 8.9 times, compared with 9.8 times for the FTSE 100.

Other financials gained too, with emerging markets-focused funds house Ashmore Group continuing to recover from recent sharp falls following a downbeat update. The stock rose 4 percent, also boosted by a Goldman Sachs upgrade to "buy" from "neutral" in a note on asset managers.

"Institutional investors will increase their allocations to emerging market debt as an asset class over the next few years ... As one of the leading emerging market debt asset managers, we believe that Ashmore will benefit from the secular growth in demand for the asset class," the bank said.

Fund firm Schroders was also an early gainer as Goldman Sachs added the company to its conviction buy list.

TIGHT RANGE

The UK benchmark index has been stuck in a tight trading range between 5,600 and 5,700 since late June, just after the market rallied 7.6 percent in 6 weeks as central banks in Europe and China took action to try help stimulate global growth and help boost company profits.

Earnings were a focus among miners, which continue to be dogged by growth and cost worries.

Concern of over demand from China, the world's most ferocious consumer of raw materials, pegged back BHP Billiton shares. The shares fell despite the Australian miner posting strong growth in iron ore production in the June quarter and saying it expects to lift Australian iron ore output by 5 percent in the 2013 financial year.

Rio Tinto, which reported steady output on Tuesday, fell 1.6 percent as UBS cut its target price on the company.

Fresnillo, liked by fund managers as a proxy for gold, rose 3.3 percent. There was relief as the Mexican precious metals producer said silver and gold output was on track to meet its targets for 2012.

Land Securities fell 0.7 percent after a first-quarter update. The stock was weighed by a downgrade by Barclays, which also cut its rating on peers Hammerson and British Land -- down 1.7 percent and 0.7 percent, respectively -- on valuation grounds in a note on real estate firms.

In the same sector Capital Shopping Centres rose 1.3 percent as Barclays upgraded the firm to "overweight" from "equalweight".

Imperial Tobacco went ex-dividend on Wednesday, after which investors will no longer qualify for the latest dividend payout. According to Reuters calculations at current market prices, the effect of the resulting adjustment to prices by market-makers took 1.25 points off the index.

On the domestic data front, the minutes of the latest Bank of England Monetary Policy Committee meeting and UK claimant count for June are due to be released at 0830 GMT.